Home Loan Sanction Letter - Definition, Process, Eligibility

When you apply for a home loan and submit all the necessary paperwork, if and when the lender approves your loan, they will first give you home loan sanction letter. This letter precedes the final home loan agreement and contains particulars of the home loan like loan amount, interest rate, tenure etc.In this blog, we’ll be taking a deeper look at the home loan sanction letter and its importance.

Once a lender approves you home loan or sanctions it, as is the term sometimes used, they will send you a home loan sanction letter. This letter means that your home loan is more or less sanctioned according to the mentioned terms of the loan. After due deliberation of your application, the lender decides on the appropriate loan amount, interest rate and tenure and mentions all this in the sanction letter.However, do note that the sanction letter is not the final document that guarantees you the home loan. There are other formalities to be completed like legal and technical verification. A representative of the lender will do a physical verification by visiting your address. The lender may change the terms in the sanction letter after all formalities are complete. You have the option to reconsider the loan based onthe sanction letter. If you feel the terms of the loan are fair, you can go ahead with the loan. If not, you may renegotiate or look for other lenders.

The home loan sanction process begins after your home loan gets provisionally approved by the lender. Once you submit your home loan application alongwith the relevant documents, the lender begins their verification process. This can be lengthy and may take a few weeks, your documents will be verified and the lender also assesses your financial standing and creditworthiness. The value of the property proposed as collateral is verified and once the lender is satisfied with all these details, they will send a sanction letter.A sanction letter may be delayed if the lender asks for additional documents, or if there is insufficient information in your application. It is the first document that you receive after your loan is approved. Your home loan sanction letter will have all the terms of the loan, like:

• Home loan amount
• Interest rate and whether it will be a fixed rate or floating rate
• Loan repayment tenure
• Mode of repayment
• EMI payment details
• Validity of sanction letter

The last detail above is particularly significant. The terms of the sanction letter do have a validity period. This means that you have a limited amount of time to go ahead with the home loan or the terms may change. The validity is usually 6 months but it all depends on the lender.

The eligibility criteria for a home loan sanction letter are the same as those for a home loan. Do note that the eligibility criteria may be different for different lenders. The following are some general eligibility criteria for a home loan in India:

• The applicant must be an Indian national.
• The age of salaried applicants must be between 23 to 62 years while that of self-employed individuals must be between 25 to 70 years.
• At least 3 years of work experience must be seen for salaried applicants while self employed applicants must prove continuity of business for at least 3 years.
• Applicants must have a CIBILscore of 750 or higher.

The documents required or a home loan sanction letter are as follows:

• KYC documents: These include valid identity and address proof documents like passport, driving licensee, Aadhar Card, Voter ID etc.
• Salary slips of last 2 months
• Employment ID card
• Bank account statements of last three months
• Previous years ITR filing

Additional documentation may also be required by the lender if they feel the provided documents are insufficient.

The home loan sanction limit is the limit upto which the lender can provide a home loan. It is the maximum loan amount that a lender can provide as home loan. The sanction limit decided by the lender depends on factors like:

• Market value of property
• Agreed down payment amount
• Applicant’s financial history like credit rating, income, age etc.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.